A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Koster, Peter Research Report Luxembourg as an aspiring platform for the aircraft engine industry EIKV-Schriftenreihe zum Wissens- und Wertemanagement, No. 13 Provided in Cooperation with: European Institute for Knowledge & Value Management (EIKV), Luxemburg Suggested Citation: Koster, Peter (2016) : Luxembourg as an aspiring platform for the aircraft engine industry, EIKV-Schriftenreihe zum Wissens- und Wertemanagement, No. 13, European Institute for Knowledge & Value Management (EIKV), Rameldange This Version is available at: http://hdl.handle.net/10419/147292 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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André REUTER ‐ 27d, rue du Scheid L‐6996 Rameldange ‐ GD de Luxembourg [email protected] www.eikv.org Luxembourg as an aspiring platform for the aircraft engine industry Peter Koster 2 Table of Contents PREFACE ...................................................................................................................................................................... 4 TABLE OF FIGURES: ................................................................................................................................................. 4 ACRONYMS .................................................................................................................................................................. 5 1. LUXEMBOURG FOR AVIATION ........................................................................................................................ 8 2. OBJECTIVE ............................................................................................................................................................ 10 3. ASSIGNMENT ANALYSIS ................................................................................................................................... 10 3.1. BACKGROUND ...................................................................................................................................................... 10 3.2. APPROACH STRATEGY ......................................................................................................................................... 11 4. AIRCRAFT LEASING & ENGINE LEASING. ................................................................................................... 12 4.1. OUTLOOKS OF ASSET EXPLOITATION ................................................................................................................ 14 4.2. GROWTH PROJECTIONS ....................................................................................................................................... 16 4.3. THE ECONOMIC FOOTPRINT OF AVIATION ........................................................................................................ 18 4.4. CORRELATION OF GDP AND AIR TRAFFIC PASSENGERS .................................................................................. 20 4.5. SELECTIVE OPPORTUNITIES FOR LUXEMBOURG ............................................................................................... 22 5. ENGINES ARE THE BETTER CHOICE ............................................................................................................ 24 5.1. ENGINE LEASE MARKET IS GROWING FASTER .................................................................................................... 25 5.2. THE ENGINE VALUE EQUATION ........................................................................................................................... 26 5.3. ENGINES HAVE HIGHER LEVEL OF STANDARDISATION THAN AIRCRAFTS ........................................................ 27 5.3. ENGINES HAVE MORE VALUE GENERATOR.......................................................................................................... 28 5.3. OEMS DOMINATE THE MARKET ......................................................................................................................... 29 5.5. REGULATION IS REQUIRED .................................................................................................................................. 31 6. AN EXPANDING OPPORTUNITY ON ENGINE LEASE MARKET ............................................................. 32 6.1. INCREASE OF AIRCRAFT OPERATING LEASES ..................................................................................................... 32 6.2. SPARE ENGINE LEASES ......................................................................................................................................... 32 7. ENGINES ARE ATTRACTIVE AVIATION ASSETS. ...................................................................................... 34 7.1. LONG ECONOMIC LIFE .......................................................................................................................................... 34 7.2. UNIT PRICE IS LOWER THAN THE AIRCRAFT PRICE ........................................................................................... 35 7.3. CASH FLOWS ARE MORE PREDICTABLE .............................................................................................................. 35 7.4. ENGINE VALUES ARE MORE STABLE THAN AIRCRAFT VALUES FOR LIFE. ......................................................... 35 7.5. END OF LIFE ENGINE VALUE IS GREATER THAN THE AIRCRAFT VALUE ............................................................ 35 3 8. ENGINES WIN THE RESIDUAL VALUE BATTLES ...................................................................................... 35 8.1. TOTAL ENGINE VALUES AS % OF TOTAL AIRCRAFT VALUE ............................................................................... 35 8.2. DIFFERENT INTERFACES WITH DIFFERENT PERSPECTIVES .............................................................................. 36 8.3. THE ENGINE LESSORS MARKET PLACE .............................................................................................................. 37 8.4. SPARE ENGINES DEMANDS GROWTH IN PARALLEL ........................................................................................... 38 PART TWO ................................................................................................................................................................ 39 9. HISTORY OF LUXEMBOURG AND AVIATION ............................................................................................ 39 9.1. THE ROOT CAUSE ................................................................................................................................................ 39 9.2. LUXEMBOURG AIRPORT DEVELOPMENT ............................................................................................................ 41 10. LUXEMBOURG’S SHADOWED DEVELOPMENT ...................................................................................... 42 11. PLATFORM COMPETITION .......................................................................................................................... 44 11.1. AVIATION LEASING IN IRELAND ....................................................................................................................... 44 11.2. WEAKNESS OF IRELAND AS A PLATFORM ....................................................................................................... 46 11.2. ASSET MANAGEMENT COMPETENCE ................................................................................................................ 47 12. OPPORTUNITIES FOR LUXEMBOURG....................................................................................................... 47 12.1. SOURCING FINANCE........................................................................................................................................... 47 12.2. ENHANCED EQUIPMENT TRUST CERTIFICATES (EECT) ............................................................................... 48 12.2.1. EETC SECURITISATION ................................................................................................................................................. 48 12.2.2. PORTFOLIO SECURITISATION ......................................................................................................................................